NAV and Investment Update

Sequoia Economic Infra Inc Fd Ld
15 August 2023
 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES

15th August 2023

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

 

NAV update

The NAV per share for SEQI, the specialist investor in economic infrastructure debt, increased to 92.41 pence per share from the prior month's NAV per share of 91.95 pence, (being the 30 June 2023 cum-income NAV of 93.67 less the dividend of 1.71875 pence per share declared in respect of the quarter ended 30 June 2023 and paid in August 2023), representing an increase of 0.46 pence per share.

A full attribution of the changes in the NAV per share is as follows:

 

 

pence per share

June NAV 

   93.67

Interest income, net of expenses

0.77 

Asset valuations, net of FX movements

   -0.37

Accretion from share buyback

    0.06

Dividend

   -1.72

July NAV

   92.41    

 

 

 

As the Company is approximately 100% currency hedged, it does not expect to realise any material FX gains or losses over the life of its investments. However, the Company's NAV may include unrealised short-term FX gains or losses, driven by differences in the valuation methodologies of its FX hedges and the underlying investments - such movements will typically reverse over time.

 

Market Summary

 

The Bank of England (BoE) raised borrowing costs by 25 basis points in early August following "better than expected" data. UK equities also rose during the month of July 2023, as investors grew more confident of less aggressive rate hikes by the BoE. The BoE now expects inflation to fall to 5% by the end of 2023, to keep on falling in 2024 and reach its 2% target by early 2025. UK inflation data for July is expected to be released tomorrow ahead of the BoE's next rate decision in September. In addition, the Federal Reserve and European Central Bank both raised their rates by 25 basis points, as inflation has shown signs of abating across both regions and both central banks have reported resilient growth and below-market forecasts for inflation.

 

Given the high proportion of floating rate loans in the portfolio (55%) the cumulative effect of interest rate rises has been to increase the yield-to-maturity on the portfolio from 9.8% to 12.0% over the last twelve months.

 

Over the month, credit spreads remained broadly flat in the US, whilst the Company observed further tightening in benchmark spreads in the UK and Europe due to improved market sentiment. This was reflected in a moderate increase in the valuation of fixed rate assets such as Infinis, Project Nimble and AP Wireless on the Company's loan book. In general, credit markets have performed well in July 2023, with high yield bonds outperforming government bonds.

 

 

Share buybacks

The Company continued to repurchase shares and bought back 10,519,198 of its ordinary shares at an average purchase price of 77.99 pence per share in July 2023. Following this, the Company holds 73,049,745 ordinary shares in Treasury following the commencement of a share buyback programme in July 2022. The Board and the Investment Adviser remain confident in the Company's NAV, including uplifts over time expected from the pull-to-par effect. The rate at which SEQI buys back Shares will vary depending on various factors, including the level of our Share price discount to NAV. The Company believes that buying in Shares at greater discounts will generate Shareholder value over the long term.

 

Portfolio update

The Company is attractively positioned from a liquidity perspective with cash of £101.7m available, compared to undrawn commitments on existing investments of £36.1m. The Company's is currently not geared and its revolving credit facility is undrawn, resulting in additional capacity to manage future volatility in exchange rates, while simultaneously reducing cash drag on non-invested capital. The Company also has an active pipeline of new investments with attractive yields in the current interest rate environment and intends to draw on the revolving credit facility when appropriate while prudently balancing its capital allocation. Further updates will be provided to shareholders upon the completion of these deals during the summer of 2023. The pipeline is diversified by sector, sub-sector, and jurisdiction, with yields ranging from 9% -11%.

 

The Company's invested portfolio consisted of 58 private debt investments and 4 infrastructure bonds across 8 sectors and 27 sub-sectors. It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 12.0% and a cash yield of 7.4%. The weighted average portfolio life remains short and is approximately 3.3 years. Private debt investments represented 97.2% of the total portfolio. The Company's invested portfolio remains geographically diverse with 48.3% located across the US, 27.1% in the UK, 24.5% in Europe, and 0.1% in Australia/New Zealand.

 

As at 31 July 2023, the pull-to-par is estimated to be worth approximately 6.7p/share over the course of the life of the Company's investments. Investors are reminded that declines in unrealised mark-to-market adjustments should reverse over time as the investments approach their repayment date (the "pull-to-par" effect), assuming there are no performance related adjustments required to their value.

 

At month end, approximately 100% of the Company's NAV consisted of either Sterling assets or was hedged into Sterling. The Company has adequate liquidity to cover margin calls on its hedging book.

 

The following investments settled in July 2023 (excluding small loan drawings of less than £0.5m):

 

• Two additional Senior loans for £3.4m to Project Octopus, a telecom infrastructure services provider based in the UK; and

• An additional Senior loan for PLN 7.6m (equivalent to £1.5m) to Green Genius to finance the construction of solar PV projects in Poland.

 

No investments sold or prepaid in July 2023

 

Non-performing loans  

 

The Investment Advisor continues to actively manage its two non-performing loans (which together represent 3.5% of NAV) with the loans independently marked to market by PwC as part of the monthly valuation process. Further updates will be provided to shareholders in the future when developments occur.

 

Ordinary Portfolio Summary (15 largest settled investments)

Investment name

Currency

Type

Ranking

  Value £m(1)

Sector

Sub-sector

Cash-on-cash yield (%)

Yield to maturity / worst (%)

Bannister Senior Secured 2025

GBP

Private

Senior

58.9

Accommodation

Health care

10.62

12.73

AP Wireless Junior

EUR

Private

Mezz

56.9

TMT

Telecom towers

4.69

8.45

AP Wireless US Holdco

USD

Private

HoldCo

56.6

TMT

Telecom towers

6.18

10.19

Lightspeed Fibre Group Ltd

GBP

Private

Senior

56.0

TMT

Broadband

6.69

15.56

Infinis Energy

GBP

Private

Senior

54.5

Renewables

Landfill gas

5.96

7.61

Project Tyre

USD

Private

Senior

53.2

Transport assets

Specialist shipping

10.75

10.75

Hawkeye Solar HoldCo 2030

USD

Private

HoldCo

50.8

Renewables

Solar & wind

8.99

9.95

Workdry

GBP

Private

Senior

50.0

Utility

Utility Services

8.43

8.42

Expedient Data Centers Senior

USD

Private

Senior

49.9

TMT

Data centers

11.04

11.35

Tracy Hills TL 2025

USD

Private

Senior

48.4

Other

Residential infra

11.82

11.82

Kenai HoldCo 2024

EUR

Private

HoldCo

45.6

Power

Base load

0.00

30.24

Montreux HoldCo Facility

GBP

Private

HoldCo

45.2

Accommodation

Health care

17.67

0.00

Sacramento Data Centre Senior

USD

Private

Senior

43.4

TMT

Data centers

7.53

8.85

Madrid Metro

EUR

Private

HoldCo

43.1

Transport assets

Rolling stock

1.47

8.72

Project Nimble

EUR

Private

HoldCo

42.5

TMT

Data centers

8.87

11.94

 

Note (1) - excluding accrued interest

Disclaimer: the dividend increase is a target and not a profit forecast

 

The Company's monthly investor report and additional portfolio disclosure will be made available at: https://www.seqi.fund/..

LEI: 2138006OW12FQHJ6PX91

This announcement is not for publication or distribution, directly or indirectly, in or into the United States of America. This announcement is not an offer of securities for sale into the United States.  The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States, except pursuant to an applicable exemption from registration.  No public offering of securities is being made in the United States.

For further information please contact:

Sequoia Investment Management Company                           +44 (0)20 7079 0480

Steve Cook

Dolf Kohnhorst

Randall Sandstrom

Greg Taylor

Anurag Gupta

 

Jefferies International Limited                                                  +44 (0)20 7029 8000

Gaudi Le Roux

Stuart Klein

 

Teneo (Financial PR)                                                                  +44 (0)20 7353 4200

Martin Pengelley

Elizabeth Snow

 

Sanne Fund Services (Guernsey) Limited                               +44 (0) 20 3530 3107

(Company Secretary)                                                                       

Matt Falla                                                                                             

Lisa Garnham                                                                                     

About Sequoia Economic Infrastructure Income Fund Limited

The Company seeks to provide investors with regular, sustained, long-term distributions and capital appreciation from a diversified portfolio of senior and subordinated economic infrastructure debt investments. The Company is advised by Sequoia Investment Management Company Limited.

 

 

 

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